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K+S Plunges as Uralkali Sees Cartel End Hurting Pricing

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July 30 (Bloomberg) -- K+S AG fell the most in almost 15 years after competitor OAO Uralkali, the world’s largest potash producer, predicted that prices for the crop nutrient will fall about 25 percent after it exits an export cartel.

K+S is monitoring developments as providing a comprehensive assessment of the situation is not currently possible, it said. Shares of K+S plunged as much as 27 percent to 19.40 euros.

Prices of potash may fall below $300 a ton after the change in Berezniki, Russia-based Uralkali’s trading policy, Chief Executive Officer Vladislav Baumgertner told reporters today by phone. K+S extracts potash and magnesium crude salts at six mines in its home country of Germany, and gets more than half of revenue from the potash division.

“K+S’s potash earnings are highly dependent on the export cartels holding potash prices well above marginal producers cash costs,” Jeremy Redenius, Catherine Tubb and Ben Shields, London-based analysts at Sanford C. Bernstein & Co., said in a note today. “This decline would eliminate K+S’s potash earnings.”

Shares of the German company, rated underperform by Sanford C. Bernstein, was trading down 21 percent at 21.09 euros as of 2:49 p.m. in Frankfurt in the biggest decline since at least Sept. 30, 1998.

Cartel Break Up

Uralkali’s cooperation with Belarusian potash producer Belaruskali reached “a deadlock” after the national government in Minsk canceled their joint trading venture’s exclusive right to export the country’s potash and Belaruskali made independent deliveries, Uralkali said in a statement. The Russian potash producer will switch exports to its own trader, Uralkali Trading, from the Belarusian Potash Co. partnership.

“Prices could fall to marginal-cost production,” Tubb, one of the Bernstein analysts, said by phone. “That would be bad for a high-cost producer like K+S. They have older mines in Germany, and they can’t grow volumes there.”

“The indicated slump in potash prices would have a substantial impact on our group estimates for K+S,” Karsten Oblinger, an analyst at DZ Bank, said in note to clients. Oblinger is reviewing his rating and valuation of the company.

K+S is developing a potash mine in Canada with operations scheduled to start in mid-2016 and development costs are 26 percent more than expected, it said in April. The company, in a statement today, said the positive medium- and long-term trends for potash remain unchanged.

“They have started a new mine in Canada and the question now is whether that is viable if potash prices fall significantly,” Tubb at Bernstein said.

To contact the reporter on this story: Sheenagh Matthews in Frankfurt at smatthews6@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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